Aurora Cannabis Inc.

Greetings and welcome to the Aurora Cannabis Inc. Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Ananth Krishnan, Vice President, Corporate Development and Investor Relations. Thank you, Anand. You may begin.

Thank you, John, and good afternoon, everyone. We appreciate you joining us today. With me are CEO Miguel Martin and CFO Glenn DeBitt. After the market closed, Aurora issued a news release announcing our fiscal 2023 second quarter financial results. This news release, accompanying financial statements and MD&A, are available on our IR website and can also be accessed via CDAR and EDGAR. In addition, you will find the supplemental information deck on our IR website. Listeners are reminded that certain matters discussed on today's conference call could constitute forward-looking statements that are subject to risks and uncertainties related to our future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in our annual information form and other periodic filing and registration statements. These documents may similarly be accessed by CDAR and EDGAR. Following prepared remarks by Miguel and Glenn, we will conduct a question and answer session with our analysts. We ask you to limit yourself to one question and then get back in the queue for follow-up. With that, I will turn the call over to Miguel. Miguel, please go ahead.

Thank you, Anant. First and foremost, we are very proud to have achieved what we set out to do several quarters ago, namely reaching our objective of positive adjusted EBITDA by the end of the 2022 calendar year. We are confident that we can deliver positive adjusted EBITDA on an annualized basis going forward, although there may be some quarter-to-quarter variability due to the dynamic nature of the cannabis industry and the seasonality we previously talked about at our Bebo business. Importantly, as part of our business transformation, we also completed the structural changes we had intended to make as part of our cost rationalization. These will certainly yield benefits for Aurora in both the near and long term. Annualized savings now total approximately $340 million since February 2020 and included substantial progress in cutting quarterly SG&A to well below $30 million. Our next financial milestone will be achieving positive operating cash flow as part of our plan to build long-term shareholder value. We expect this to be a multi-quarter initiative and we will update the market on our progress to this new milestone. Looking forward, our enthusiasm for the future is anchored by our number one position in global medical cannabis among Canadian LPs and the growth we've been able to sustain despite some quarter-to-quarter variability. With loyal patients in existing markets and more developing countries poised to open, we think the top-line growth trend should continue. As a reminder, medical cannabis is a business we want to invest behind, not only because of its growth characteristics, but because of its defensive nature in volatile times. It also enjoys enviable adjusted gross margins that consistently exceed 60%, twice that of consumer cannabis. Aurora is also ideally positioned because of our robust balance sheet and net cash position, which puts us in select company among our industry peers. This has allowed us to repurchase approximately $302 million in convertible debt in the last 12 months, resulting in about $17 million in cash interest savings on an annual basis. Finally, our investments in science, breeding, and genetics have resulted in proprietary cultivars and driven meaningful improvements to yields and potency that have benefited all of our product lines. We also remain committed to furthering medical cannabis clinical research in Canada, which should position us for innovation, which will be a key factor to success going forward. So those key strengths as a backdrop, let's take a deeper dive into our global medical cannabis business. As we had expected, international medical revenue rose sequentially compared to Q1, which can be attributed to our strength in the Australian market as well as continued success in Europe. Our European business continues to demonstrate stability and growth on a year-over-year basis. Anchored by the German medical market, we remain number two in flowers. Based on recent comments from the Health Minister, we expect further clarity around recreational legalization in Germany sometime this spring, with a potential start to the market there as early as 2025. We continue to believe Aurora's position as one of only three companies with a medical domestic production license will give us a significant advantage as the regulatory framework is developed. We are also bullish on the opportunities that lie ahead in our other key European markets, which include Poland, UK, Czech Republic, and France. While markets such as Australia and Israel continue to develop, our presence across nearly a dozen countries outside of Canada affords us relative insulation to individual economic and regulatory climates. Turning to the high-margin Canadian medical market, most of the sequential growth in revenue was driven by a one-time benefit from Q1. However, Even after normalizing for this adjustment, we still experience a 2% growth in revenues. We are extremely happy with this when coupled with recent cost reductions, which drove meaningful improvements in profitability. Over the past several months, Aurora patients have been given access to the largest ever selection of products and formats on Aurora Medical, with over 75 SKUs launched in the medical channel between Q1 and Q2. These include products from our full portfolio of adult-use cannabis brands, such as bean quick strips, Ray Beard premium flour, and new pre-rolls, concentrates, and minor cannabinoid oils. Notably, our Canadian medical business benefits from strong patient retention, with insured patients comprising about 80% of all medical sales as part of a concentrated market with significant barriers to entry. Our industry-leading market share also remains at about 25%, roughly double that of our closest competitors. To sum up, we remain very optimistic for this segment, as we are not only increasing the number of patients in the insured category, but have also experienced year-over-year increases in basket size and participation rates. Note that only about 1% of the Canadian adult population is involved in medical cannabis, so any sort of movement makes a massive difference, with the benefits outsized to a very small subset of companies like Aurora that participate in this segment. Switching to Canadian Adult Rack, our Q2 revenue shows sequential growth of 7%. This increase was achieved despite some temporary industry disruption and a reduced number of shipping days over the holidays. The key driver for us here was strong sales execution, coupled with a strong pipeline of innovative new product offerings. As you may recall, one of the key reasons for our acquisition of Thrive last year was their ability to manage our Canadian Rack business. and we are thrilled to see our M&A strategy paying off. Finally, we plan to drive significant shareholder value over the long run through our controlling interest in Bevo, which is one of the largest suppliers of propagated vegetables and ornamental plants in North America. We are currently repurposing the Aurora Sky facility for orchid and vegetable propagation with minimal capital investment. This will not only increase Bevo's production capability and extended shipping range in Canada and the U.S., but also enable us to generate predictable, incremental revenue and adjusted EBITDA. And with that, now I'd like to turn the call over to Glenn for our financial review.